Bank rates lead to swaps

With borrowing rates falling, production is bleeding capital as debtors deposit funds in high interest accounts

As borrowing rates have reduced sharply, dropping as low as 6-7 per cent for good enterprises and enterprises benefiting from state preferential treatment, firms have made the most of their cheap loans to exploit short and long-term deposit rates of around 7 and 10 per cent respectively.

According to Nguyen Duc Vinh, general director of VPBank, due to the pressure to increase credit growth and reduce interest rates, many banks lowered their lending rates to 6 per cent. However, he said, some enterprises had just used such low-cost loans to deposit the cash at other banks to benefit from the 7 per cent interest, rather than investing in economic growth.

Another bank executive said “Enterprises that can take such low interest loans are often carefully scrutinised by banks and would have to show evidence of the projects they required the loans for.”

However, he admitted it could be possible. “Banks are generally only capable of tracing 10 per cent of their capital after releasing it to their clients.”

Economist Bui Kien Thanh said such speculative instances had been reported in 2009-2010 when the government launched the bailout credit package at a 4 per cent rate. “At that time, many enterprises that had access to low cost capital lent it at higher rates to other businesses or deposited the loans at banks to gain from the much higher interest rates,” Thanh said.

“To ensure cheap capital flows into production, we have to manage cash flow. Banks ought to keep track of where their capital is being invested, otherwise nobody will know whether low-cost capital is actually being used for something useful.”

Thanh also complained that a reason for the problem was that the loans were based only on collateral. “Banks only need collateral to grant loans without requiring enterprises to show invoices, business contracts or feasible projects.”